Answer to Question #99268 in Macroeconomics for differences (kk)

Question

what are the differences between The Ramsey–Cass–Koopmans model and the Solow–Swan model ?

Answer 1

Solow and Swan proposed an economic model for long-term economic growth within the framework of the neoclassical economy. They try to explain long-term economic growth by looking at capital accumulation, labor or population growth, and productivity gains, commonly called technical progress. At its core, the model offers a neoclassical (aggregate) production function, often defined as a function of the Cobb-Douglas type, which allows us to establish the relationship of this model with models used in microeconomics.

Disadvantages of the Solow model: 1. Exogenous penchant for saving 2. Lack of explicit macroeconomic grounds 3. Exogenous growth in total factor productivity (technological progress) 4. Assuming perfectly competitive markets The first two of these shortcomings are solved using the Ramsey-Kass – Kupnas model. The model explains the basic macroeconomic patterns, but does not explain the reasons for global economic growth. The overall long-term growth in this model provides a parameter of labor efficiency, which is not explained in the model, but is given exogenously. In the Ramsey model, dynamic inefficiency is absent, since the choice of the saving rate is the result of the optimal solution of economic agents.